According to a recent report by JP Morgan, rising data consumption and gentle price hikes in the telecom sector is expected to drive average revenue per user (ARPU) recovery. In addition, upgrade to smartphones by subscribers and access to high-speed internet will be industry growth catalysts.
Further, the report added that the consolidation is expected to continue in favour of Reliance Jio and Bharti Airtel, as Vodafone Idea keeps losing market share. According to Morgan, low marginal costs of data provision imply significant operating leverage from traffic growth and continued polarisation in favour of Jio and Airtel. This, in turn, means sharp earnings before interest tax depreciation and amortisation (EBITDA) growth for Airtel and Jio and continued marginalisation of Vodafone Idea.
As per JP Morgan, Indian telcos have the lowest return on invested capital (ROICs) among Asian peers operating in similar market structures and thus true market repair is still due, pointing to expected ARPU recovery.
Further, the report noted that Airtel should win at the premium end of the market, driving superior ARPU, and Jio at the scale end, with superior share gains in revenues and subscribers.